Bill Gross Thinks Fed Will Keep Playing With the Markets

by Tom Taulli | March 19, 2012 11:00 am

[1]As always, PIMCO’s co-chief investment officer Bill Gross has some interesting thoughts on the macro economy[2]. In various interviews last week, he said the Federal Reserve will continue to pump up the money machine to keep the U.S. economy running. This not only means another round of quantitative easing 3 (QE3), but perhaps even QE4.

Gross admits the U.S. economy is getting better, but he points out that unemployment remains persistently high and the growth rate in the gross domestic product is at lackluster levels of about 2% or so. Inflation also is becoming a problem, especially with the high price of crude oil. Other headwinds include slowing growth in China[3] and, of course, Europe.

Keep in mind that the Fed also has engaged in “Operation Twist,” which has involved the sale of short-term bonds and the purchase of long-term bonds. But the program will end in a couple months. In other words, there could be a hole in demand for bonds. So if rates increase — and they have already been moving upward — the Fed might have little choice but to launch QE3.

If anything, Wall Street might already have been anticipating this — which is perhaps the catalyst for the strong rally in equities.

It also has been a big opportunity for savvy bond investors like Gross. So far this year, his PIMCO Total Return Fund (MUTF:PTTRX[4]) has done well, with a return of 4.16%. Gross has focused on bonds with durations of four to five years. He also likes investments in mortgages and bonds in emerging markets.

And early this month, Gross launched an ETF version of Total Return[5], dubbed the PIMCO Total Return Exchange-Traded Fund (NYSE:TRXT[6]). TRXT also looks like a good way to get exposure to bonds.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7], a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”[8], “All About Short Selling”[9] and“All About Commodities.”[10] Follow him on Twitter at@ttaulli[11] or reach him via email[12]. As of this writing, he did not own a position in any of the aforementioned securities.